Payday loan interest rates to be 'capped'

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Payday loan companies could have their interest rates capped by the new
financial regulator after the Government agreed to an amendment of the
upcoming Financial Services Bill.

Payday loan companies, such as QuickQuid, Wonga and Payday UK, have drawn
heavy criticism for charging annual interest rates of up to 4,000 per cent a
year. The firms have been accused to pushing vulnerable people into debt.

Lord Welby, the incoming Archbishop of Canterbury, recently said that some
payday loans are "usury" and claimed that curbing them was a "moral"
issue.

After a day of political manoeuvering, the Government said that it will give
the new financial regulator the Financial Conduct Authority (FCA) the
power to cap the interest rates charged by payday lenders.

The move was announced by Lord Sassoon, a Treasury minister, after Labour peer
and shadow business minister Lord Mitchell put forward an amendment to the
Financial Services Bill.

The amendment was backed by peers including Lord Welby and Baroness
Grey-Thompson, the Paralympian, and could have led to a Government defeat in
the Lords.

However Lord Sassoon said if Lord Mitchell withdrew his amendment, the
Government will introduce its own amendment when the Bill has its third
reading next week.

Lord Sassoon said: “We need to ensure that the Financial Conduct Authority
grasps the nettle when it comes to payday lending and has specific powers to
impose a cap on the cost of credit and ensure that the loan cannot be rolled
over indefinitely should it decide, having considered the evidence, that
this is the right solution."

He told peers: "This issue is now where it should be - beyond party
politics. The winners are those who have tirelessly campaigned for this
change in the law and I must mention Stella Creasy MP, who has been
relentless in her pursuit of justice.

"The other winners are those who live in the hell-hole of grinding debt.
Their lives will become just a little easier.

"The losers are clearly the loan sharks and the payday lending companies.
They have tried every trick in the book to keep this legislation from being
approved and they have failed. Their failure is our victory."

A Treasury spokesman said that the Financial Services Bill had contained
provisions to allow the FCA to cap payday loans when it was first laid
before Parliament in January. However he said that the Government’s
amendment will make this power stronger.

Chris Leslie, Labour and Co-operative Party MP for Nottingham East, told
Twitter: “Faced with certain defeat in the Lords, the Treasury looks set to
accept Labour’s amendment to protect consumers from extortionate interest
rates. But it shouldn’t have taken 9 months since we tabled amendment in the
Commons for the Government to cave in and tackle high cost lending.”

Earlier this month the Financial Ombudsman Service (FOS) said that it had seen
a significant rise in the number of complaints about payday loan firms. The
FOS, which resolves disagreements between companies and individuals,
currently finds eight out of ten payday loan complaints in favour of the
consumer.

The FOS said the main complaint was that the loan was unaffordable and should
not have been granted in the first place. Other reasons were that the
charges were too high and that the loan provider would not accept a suitable
repayment plan.

The Office of Fair Trading (OFT) recently called for the worst offending
payday loan companies to be shut down if they are not adhering to its
so-called Irresponsible Lending Guidance.

The OFT guidance said creditors should treat borrowers fairly, be clear about
what they are doing and give borrowers 'reasonable' time to repay the loan
varying dependent on the borrower's circumstances.

In response to the OFT’s comments, Wonga said that it has “consumer
safeguards” in place and said that it “rigorously” credit checks all
applications. The firm said that it declines two-thirds of first-time
applicants, who are limited to a loan of £400.

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